Saturn was General Motors’ response to the Japanese invasion of the US auto market.
The Japanese automakers’ penetration of the US market gathered momentum throughout the 1970s and ‘80s. By 1990, this was a major cause for concern, not just in Detroit, but also in Washington DC, where politicians observed the country’s ballooning trade deficit with alarm. The problem was exacerbated by the behaviour of the US automakers themselves, who were sourcing an increasing proportion of their vehicle parts from Japan.
In 1990, the US-Japan bilateral trade deficit in vehicles and automotive parts was $31.1 billion(1). This represented 28% of the total US trade deficit, and 76% of the country’s bilateral trade deficit with Japan. The deficit in vehicles was $20.6 billion, barely increased on the $19.7 billion deficit seen in 1985. The deficit in automotive parts, however, had more than doubled over the same period, from $4.4 billion to $10.5 billion.
The US automakers struggled in particular to build cheaper, economy cars that were a match in terms of quality and reliability for their Japanese competitors. Part of the problem was the legacy issues concerning the rigidity of labour contracts negotiated with the powerful UAW(2) union over several decades, which included generous healthcare and pension provisions. When many of these contracts were agreed, the US automakers enjoyed a virtual stranglehold over their domestic market and operated as an oligopoly. Hence, they needed to pay little heed to working practices at their overseas competitors and could afford to be more generous than might otherwise have been the case.
The problem of Japanese incursion into the US auto market was even more serious than the trade imbalance figures suggested. Honda opened its first US manufacturing facility in Maryville, Ohio, in 1982 where it initially built the US market Accord. A year later, Nissan opened a factory in Smyrna, Tennessee.
In 1984, Toyota joined forces with General Motors to establish a joint-venture company, NUMMI(3), reopening a shuttered GM plant in Fremont(4), California, initially to build the US market Corolla and a GM-branded version, the Chevrolet Nova, which was succeeded by the Geo Prizm. Toyota followed this up in 1988 by opening its own manufacturing plant in Georgetown, Kentucky, where the US-market Camry was built.
Subaru and Isuzu, each too small in sales terms to justify their own US manufacturing plant, teamed up in 1986 to open a factory in Lafayette, Indiana, to build the Subaru Legacy and Isuzu Rodeo models. All these US-built so-called transplants were not contributing directly to the trade imbalance(5) but were helping to expand the Japanese market share even further.
Moreover, because these plants were being established in areas that were not in the traditional home of auto manufacturing, state governors were keen to offer generous start-up grants to attract them in. With a new and largely youthful workforce, healthcare and pension costs would be significantly lower than those incurred by the Detroit Big Three, at least for a generation.
The effect of these developments on the Japanese automakers’ share of the US market was transformational. Their combined market share(6) saw a near-fivefold increase from 4.99% in 1970 to 24.29% in 1990. The US ‘Big Three’ saw their combined market share drop by 16.4% from 83.54% to 69.82% over the same period. The biggest loser was General Motors, which saw its market share fall 19.3% from 42.92% to 34.63%.
One of Toyota’s preconditions for reopening the Fremont plant was that the workers, 85% of whom had previously been laid off by GM, would only be re-employed on contracts dictated by Toyota and the plant would be run strictly in accordance with the Toyota Production System. Old GM-era hierarchies and demarcation rules would be swept away. Many former GM workers were, initially at least, adamantly opposed to this, but needed jobs, so acquiesced.
Many workers were sent to Japan to learn the Toyota system and the majority returned as disciples for the Japanese way of doing things. After production began in September 1986, productivity and quality was soon the equal of Toyota’s Japanese factories. Frustratingly for GM, the Prizm, even though it was built on the same production line by the same workers as the Corolla, was never rated as highly as the ‘Japanese’ car in consumer surveys.
Even though the NUMMI venture would ultimately be wound up, it proved a valuable learning experience for General Motors. The company knew that, in order to meet the Japanese challenge on equal terms, it would need to start with a clean sheet and establish a new manufacturing company that was unburdened with legacy costs and could negotiate new, flexible employment contracts with the UAW. That new company would be called Saturn.
Saturn LLC was established in January 1985(7) as a wholly owned subsidiary of General Motors. It would, however, be five years before the company launched its first model. In the intervening period, the new company had to be built from the ground up. A site in Spring Hill, outside Nashville, Tennessee, was identified for the company’s manufacturing plant. Spring Hill was a sleepy rural town with a population of 1,100 before Saturn’s arrival. The state paid a reported $30 million for a new road linking the site to the nearby freeway. GM reciprocated by paying a bargain $1.25 million for a new town hall(8).
The new 4.5 million sq. ft. (418,000 m2) plant comprised separate units for powertrain production, body construction and final assembly. All external components, even tyres, were single-sourced, which was the suppliers’ reward for meeting Saturn’s strict ‘just-in-time’ delivery criteria.
Everyone, from assembly line workers to senior management, were referred to as ‘partners’ and wore the same Saturn-branded polo shirts, baseball caps and jackets. Wage rates were lower than at traditional GM plants, but staff were incentivised by a system of performance-related bonuses and a much more collegiate working environment. Saturn claimed to have received 20,000 applications for the 2,700 jobs available. Over half those employed were existing or former GM staff. Beyond Spring Hill, the work of building an independent dealer network was underway.
The total cost of the Saturn venture up to launch date was said to be $3.5 billion. The first Saturn models were the Saturn SL compact saloon and SC coupé. The SL was based on a concept car first seen in the mid-1980s and was not originally intended to be a Saturn, but rather marketed under one of GM’s mainstream brands. The first example rolled off the production line on 30th July 1990 and was delivered to the new Saturn dealership in Memphis.
Saturn executives were realistic about the challenge facing the new marque. Vice-President of manufacturing, Guy Briggs, was quoted as saying flatly that “Saturn has to be a fiscal success.” Head of marketing, Don Young, said “Import buyers are not receptive to ‘made in America’. We are trying to take people out of cars which they are really happy with, into a car which they know very little about.” It didn’t help that the company behind the venture was GM, “which our research shows they aren’t so positive about either.” added Young.
The challenge ahead for Saturn was daunting. How successfully would it meet that challenge?
The story of Saturn continues in Part Two.
(1) Source: The Office for the Study of Automotive Transportation, The University of Michigan Transportation Research Institute, May 1991 report.
(2) United Auto Workers union.
(3) New United Motorcar Manufacturing Inc.
(4) The Fremont plant had an unenviable reputation for having “the worst workforce in the automobile industry in the United States” according to a UAW official recalling its troubled history. The plant is now owned and operated by Tesla.
(5) Imported parts used in these vehicles did, of course, contribute to the trade deficit.
(6) Market share data from www.knoema.com.
(7) Although claimed by GM Chairman and CEO Roger B. Smith, the concept behind Saturn predated the formation of the LLC and was the brainchild of Alex C. Mair, a GM ‘lifer’ who had led GM’s Pontiac and GMC Truck divisions during his long career before retiring in 1986.
(8) The old town hall was, allegedly, a trailer!
36 thoughts on “Falling Back to Earth (Part One)”
Really interesting article about a series of events which I remember from the time (in terms of the proposal, conception and then launch of the Saturn company and models), but not with the full facts provided here about the context of the US market at the time.
I recall that Saturn never managed to shake off the ‘made in the US’ problem for its range of compact cars, and so they never sold as well as hoped against the Japanese opposition. It’s not as if the styling, inside or out, created any distinction, as the were very bland – a bit like the slew of new-brand electric models today coming out of China and the US.
The Saturn looked good to me – but Oldsmobile stole their design themes. The glazed C-pillar is rather nice. It was done better on the 1988 Olds Cutlass Supreme.
Good morning, Daniel. This is a car that I’ve known about since it was launched, but I’ve never seen in the flesh. It had some interesting features, but I think you will get to that in the next installment.
Many years ago I was on a business trip to Oakland where I met two guys from Chicago. One of them had rented a Saturn at SFO airport and we used the car for an evening trip to downtown San Francisco. On one of those impossibly steep uphill roads with for way stop signs the driver wondered whether he could get the car to move away again. He could, but had to rev the engine to death to deliver the necessary power and he commented on that. The only comment the other guy gave was that to his opinion GM never had made a decent car and this one was no exception.
Now try to sell that car to such potential customers.
Yes, decent. Although on paper, technically superior to an Iron Duke/Tech IV powered J-car (Cavalier etc.), which was also by that time made “decent”.
Oh, I am mistaken, it is not the Iron Duke in the Cavalier, but its successor (another pushrod design) while the Saturn had an OHC design, but my point remains.
The first image in this piece is not of a production car. One can see that the intent was to handle the glazing differently than other period examples of this style such as the Geo Prizm (also pictured in the main article), or the 1990 Oldsmobile Cutlass pictured below (or the Scorpio, or XM). IMO, the intention was laudable, but the execution, as with everything Saturn, ended up compromised, if not sabotaged.
Another issue is that roofline was meant to be unique to Saturn, but Oldsmobile’s styling studio stole it and goet into production first.
Hi gooddog. I see what you mean: the car in the first image in the piece has near(er) flush glazing than the production car in your first photo. It’s a subtle difference, most evident in the almost invisible glazing bar separating the rear door moveable glass from the fixed quarterlight. Well spotted! The image I used must be of a prototype, incorrectly labelled. I’ll change the caption accordingly.
Hi nlpnt. That was just the first of many internecine attacks on Saturn. More to follow!
Thanks for a recount of a marque that, unlike many, came *and* went in my lifetime. I am looking forward to future installments.
I hope one of those installments covers the way Saturns were sold — no haggling on the price of the vehicle. Individual dealerships of many brands promoted that sales policy but I believe Saturn was the first to make it a company-wide dictum. I think GM used that feature and some others (the plastic never-rusting bodywork, “Buy American,” and the national breadth of the GM dealer network) to sell Saturns to people who were not particularly interested in the entire process of buying a car. It was a clear alternative to the approach taken by other manufacturers.
Hi Steve, and thanks for your comment. All to come in subsequent parts. I hope I’ll do this fascinating story full justice.
Very interesting article, Daniel, because just a couple of days ago I read a “first drive” of the new Saturns in an old 1990 Car and Driver issue. It seems that GM really started with a clean sheet of paper and got some things right: a brand new factory applying Japanese methods, better customer care, no bullshit marketing and price haggling, and aceptable quality. So it appears that the concept, the “idea” of Saturn, was sound. But, as I read in that first drive, the cars were only decent in a time when their Japanese rivals were great, and were outdated very quickly.
Of course, that typical ´80s GM styling did Saturn no favors and the Cutlass Supreme glasshouse was probably a stab in the back from GM insiders hostile to the new brand.
Looking forward to read the next part.
There was nothing wrong with the first generation of Saturn cars, other than a recurring head gasket problem. This was no worse than other cars at the time, whether Japanese, American, or VW (the only European brand in that price range). The US-market 1990+ Toyota Tercel, which was just as basic and sold around the same price, had even bigger engine issues. Plus it rusted prematurely…
I don’t want to spoil future instalments, but the brand ran into problems later. GM’s interest moved-on, so Saturn was given cast-offs from other divisions. Some were North-American exclusives (Opel derivatives), but most were badge-engineered cars available at other GM franchises. At that point, Saturn was no longer “a different kind of car company, a different kind of car.” They were just another GM brand competing with other GM brands, like Pontiac and Oldsmobile.
Wikipedia ironically (I think) has Buick as succeeding Saturn. Saturns were replaced by rebadged Opels; then Opels were used as the basis for Buicks so Buick took on the mantle of Saturn. What a disgrace.
Einstein said that when he died he´d ask God to explain fluid dynamics. That´s a really good question but mine is for an explanation of the complex factors that knotted up GM from the inside. Plainly there were and are some brilliant people doing clever and difficult stuff. And they are handcuffed to a team of morons who make witless decisions and destroy value at every chance. Supposedly GM is run on scientific management principles and I don´t think it ever was.
“Part of the problem was the legacy issues concerning the rigidity of labour contracts negotiated with the powerful UAW(2) union over several decades, which included generous healthcare and pension provisions. ” It´s not pertinent to the story but the reason the unions and employers had these healthcare contracts was because big corporations were terrified of national health services in the 1930s onwards; they imagined they could prevent any socialism from breaking out by providing healthcare as part of work contracts.
More pertinently, the obligation for healthcare and pension had no effect on quality on the production line. A good pension and healthcare provision does not mean a labourer can´t assemble a car properly or that it has to be badly designed or made of poor material. The provisions might have affected profitability. But the key problem was a deficient education system and probably poor industrial relations that led to US workers and US managers not being able to make automocars to the same high standards as the Japanese generally or some of better European brands (I am of the opinion most mainstream European cars in the 1970s an 1980s were as ropey as American ones but BMW and Mercedes and Porsche were leagues ahead of anything offered by Cadillac or Lincoln). Likethe UK motor industry, the US car industry was the author of its own decline.
All true, Richard, but the fact remains that (massive provider profiteering in) healthcare costs were an albatross around GM’s neck for decades, which had indirect implications for R&D spending and, ultimately, product quality. When I worked in investment banking, GM was frequently referred to as “a healthcare and pensions provider that manufactures vehicles as a sideline”.
The same was true of lot of big old-school USican corporations – steel, for example. My point remains that proximally healthcare and pensions did not cause line-workers to make shoddy cars. That´s down to management, training and education. The pensions and health cost become a problem when the Japanese presented better cars for less money. If the American cars had been competitive to begin with the pensions and health costs would not have become an issue. So the problem existed before the market challenges.
That said, GM still made plenty of pretty nice cars which as far as I know were robust and useful: Caprices, many Cadillac, Olds and Buick models. A macho mentality meant they could not apply brainpower to smaller, lighter cars. GM is a case study in the effect of toxic masculinity in a corporation.
Bakker, M. (2012). Management Style and Organizational Performance: Comparing General Motors and Toyota (Doctoral dissertation, University of Groningen. Faculty of Economics and Business) might provide clues.
“If the American cars had been competitive to begin with the pensions and health costs would not have become an issue.”
I’m afraid that, respectfully, I’ll have to disagree with you on that point. The obscene profiteering in the US private healthcare system has been a scandal that has had terrible social and economic consequences over the past fifty years. Thousands are addicted to opiates because they are uninsured and cannot afford the cost of operations to cure straightforward physical injuries. The cost of employee health insurance has become an onerous burden on US employers.
In any event, we’re in danger of straying into territory well beyond DTW’s remit, and our esteemed editor will surely tell us off for doing so.
I can´t disagree about the appalling way the healthcare system worked/s in the US. My only refinement of your general thesis is that the cost of pensions and healthcare had more indirect effects than management failures and training/education failures. What I had not considered was that healthcare and pension obligations might have taken resources that could have gone to R&D, thus indirectly harming quality. Whether that thesis is fully correct is tricky to ascertain since it may have been politically useful for GM to allocate more blame to them than was really justified. I suppose it is at the least partially correct. If GM had not had to worry about such thing it might have done a slightly better job than it did in meeting the Japanese challenge. GM is a fascinating subject, an endlessly rich seam of mysteries and conundrums.
Just to be clear: I’m not for a moment using healthcare costs as a defence for the abysmal manner in which GM was managed from the 1970s onward, in which regard we are absolutely in agreement, Richard.
I suppose that if GM was burdened with high fixed costs as employees healthcare and pensions, when Japanese rivals started to get tougher and offer better value for money, one of the fastest ways of cutting costs for GM was buying cheaper parts from suppliers. Which often harms quality.
Daniel: I think we´re on the same hymn sheet.
Thank you very much for raising and articulating this point, Richard (two different skills). Throwaway lines like the one you quote irk me. Certainly not as an attack on Daniel, mind, but it’s a subtlety that gets lost in political sloganeering too often: it’s not the concept of a labour union or other forms of employee protection that are the problem, it’s the way they are implemented. American unions are notoriously Mafia-ridden. Both your points stand, I think: the labour unions weren’t a reason per se for poor productivity, but the way they were run did cost GM so much money and flexibility that it weighed the company down. They probably, like in the UK, didn’t help day-to-day relations on the workfloor either, but again, that’s because of how they were (are) run, not the simple fact of their existence.
I think there is a (very distant) resemblance in the long wheelbase stance of the Saturn and the ADO17, which are otherwise of course very different cars. I do rather like the quirky Saturn S.
Car conglomerates are difficult beasts to manage (as evidenced by VAG and every other major manufacturer these days): how do you juggle limited resources and potentially prestigious new innovations between all the brands and still maintain the raison d’être of a multi-brand conglomerate, cost savings? With that said, is GM just spectacularly good at shooting itself in the foot? So many cars and entire brands that started with promise but were killed by committees, shoddy execution or just a loss of interest from the top.
b234r, GM didn’t buy cheap parts as a response to increasing Japanese market share. It’s the other way around: Japanese market share increased because the Big Three made such shoddy products.
The same story can be told of the British motorcycle industry. The difference being that the UK market wasn’t large enough to sustain those brands, unlike the domestic US car market.
I’ve seen this error here before … it is “Fremont” not “Fremont,” for what it’s worth ….
Hi angeljon. Thanks for pointing that out, now corrected. 🙂
it is “Fremont” not “Fremont, for what it´s worth.
– wrong, it´s Fremont actually, with those letters in that order only but Fremont is also okay.
Obviously I can’t spell either. I meant to say there’s only one ‘e’ in this name.
The healthcare and pension benefits were erected as a way to get around some tax issues.
An issue with the corporate culture was its seasonality. For example, the infamous 1/4ly reports. They’d better be all good news else promotions and benefits might be injured. Long term thinking did not thrive in this environment. Worse was how ignorance did thrive and got rewarded (at all levels). GM seemed to flit from one project of the moment to another, never sticking with any of them long enough to see them to success. It is reminiscent of Kylie Mole’s song where she sings, “I’ll love you ’till someone better comes along.”
Quarterly reports, yes. How did so-called scientific management not allow for longer term cycles? Demanding constant growth was going to lead to bad decision making.
Wasn’t it Wendelin Wiedeking who refused to publish quarterly reports because a car manufacturer’s business could not be run with a three month perspective? As a result, Porsche was thrown out of the German stock excchange index DAX.
Science is a process originally intended to discover the nature of aspects of reality. Management is the supervision of a group or groups of people undertaking a task, a complex task or multiplicity of interrelated tasks. In short, one is a process to attempt to discover aspects of the unknown, while the other is a means of supervisory control. Hence “scientific management” can be considered to be either a process to discover what management actually is (how it works , ought to work etc.- many authors have made great money pontificating on and on about this sort of thing) or an attempted control of aspects of the unknown (for example, supervision of other people wherein the supervisors are ignorant, not really knowing what they are doing, why they are doing it and, to a greater or lesser extent, what the outcomes will be). The best way to consider the term “scientific management” is as an oxymoron similar to that well known one, “military intelligence”.
Richard asks, “How did so-called scientific management not allow for longer term cycles?”
Fear of the unknown. The need to know. The demand for emotional security. The appearance that risk has been eliminated and that everything is safe from the unexpected. The illusion of being in complete control of circumstances. This drives the need for constant reporting and compliances. Supervisors/managers become glorified administrators or bureaucrats divorced from the reality of what their organisations are actually doing, how they are faring and what is developing.*
Then there was (and remain) confirmation of bias, decision support, climb the ladder politics and career development, greasing and brown nosing etc. etc. etc. Finally, there was (and remain) salary enhancement, bonuses, perks and making sure they don’t go away regardless of how well the business, its customers, its owners and its employees are actually faring.
Quoting Richard again, “Demanding constant growth was going to lead to bad decision making.”
So why was constant growth demanded? Who demanded it? Bug or feature?
*There was a situation at a large well-known organisation where a group of managers were taken to task by the CFO since he did not like to be subject to unwelcome surprises from one quarter to the next. A risk register system was developed. Risks were listed and scored from best to worst. Then solutions to address the each of the listed risks were proposed and imposed. The result was that line supervisors and middle managers got swamped with increased compliances, paper work and “systems”. The interesting result was that the “solutions” to the identified risks caused vexatious problems of their own- usually of a far larger magnitude of trouble than the risks they set out to avoid.
And, strangely enough, for the CFO unwelcome surprises kept arriving.
I have the feeling that Anglo-Saxon management is prone to more problems than N European management. You´d expect pragmatic Anglo-Saxons to have a more robust system accepting of uncertainty and able to adapt to facts rather than get stuck on theory. Seemingly Kantian philosophical outlooks produces better management.
The problem of preoccupation with quarterly returns is driven by the way the global investment market works. There is a large army of investment analysts employed to dissect quarterly results and opine on them, issuing a ‘buy’, ‘sell’ or ‘hold’ recommendation depending on their assessment of the current share price against their performance and prospects. In the case of some businesses, for example retailers, quarterly results are a pretty important indicator of their performance. For others, for example technology start-ups, quarterly results are largely meaningless, yet they get put through pretty much the same mangle.
A related problem is that senior managers of large corporations are often explicitly set share price targets and their ‘total compensation’ (salary plus bonus) is highly dependent on achieving those targets. This often makes these individuals take actions that are not in the long term interests of the company (for example, slashing expenditure on R&D, capital investment etc.) to flatter short term financial performance at the expense of the longer term prospects for the business.
The late Sergio Marchionne dramatically improved FCA’s financial performance and strengthened its balance sheet, but we can all now see the longer term impact of doing so using the ‘slash and burn’ approach to capital spending.
A system is sick when it tries to micro-manage miniature risks by ever tighter controlling but can’t see fundamental risks like the predictable failure of stupid adventures like the DaimlerChrysler ‘marriage in heaven’ or other results of unnecessary C level ego trips.